The new glow in gems and jewelry

MarshallLoeb

NEW YORK (MarketWatch) -- If you're looking for a piece of fine jewelry to invest in for your lady love or yourself this Christmas, you may get a sparkling deal.

After inflating about 20 percent annually for the last several years, prices of genuine, high-end rings, bracelets, necklaces, pins and other jewelry at long last show signs of calming down.

Demand is declining for many reasons: consumers face much higher energy bills this year, and so they have less left over for luxuries. Meanwhile, the Chinese are inundating the U.S. and other countries with low-priced but well-crafted baubles, pulling down prices.

There are, of course, exceptions.

Hurt worst are department stores and chain stores in malls, which sell the cheapest jewelry -- like Wal-Mart, Costco, Zale's, and even Bloomingdale's and Nieman Marcus.

But independent jewelers, who deal in the costliest pieces, seem to be bucking the tide.

Take Albert Yim of Albert's Fine Jewelry on New York's Fifth Avenue. He sells one-carat high-quality diamonds for $6,000 to $10,000 each and two-carat stones for $20,000 to $35,000. Says he: "The higher the quality, the easier it is for me to sell."

And Jay Mednikow, president of Mednikow Jewelers in Memphis and Atlanta, which specializes in pieces $1,000 and up (often way up), reports that his sales rose 20% in the fiscal year just closed. Says he: "The war in Iraq, terrorism, even the tsunami, earthquakes and Katrina and Rita have made people stop and ask what is important to them in life. A lot of them turn to hard assets. They don't expect to sell those assets five or seven years from now, but they will have value when other things do not."

Not only diamonds but also the "Big Three" colored stones stand to hold their value.

Rubies, particularly from Burma, are the costliest -- approximately the same price as diamonds -- because they are hardest to find. Prices of some Colombian emeralds have doubled in the last three years but lately have flattened. Deep blue sapphires -- many of the best come from Thailand -- have also stabilized in recent months.

What have really collapsed are prices of Japanese pearls. The ever resourceful Chinese have invaded the market. While a strand of 7 to 7 1/2 millimeter Japanese pearls, created in salt water, may sell in the U.S. for $3,000, a similar strand of Chinese fresh water pearls may go for only $150 to $400.

In the pearl market, size does matter, and Chinese manufacturers are learning to make bigger and bigger pearls in fresh water. They are now up to 14 millimeters, which you can play marbles with.

The Chinese also make pearls in just about as many colors as Baskin Robbins has flavors -- including purple, blue and brown. But the Japanese make them almost exclusively in white, cream and light pink. And Japanese pearls still lead the league in luster.

Watch out

The toughest competition in the jewelry market is not for sales of gems or pearls but for watches, specifically knock-offs of prestigious Swiss watches made mostly in China but also in Vietnam.

The most imitated timepieces are, more or less in order, Rolex, Panerai, Breitling, Cartier, Chopard and Patek Philippe, among others. They sell in the U.S., usually on the Internet, as "watch replicas," for $300 or so, which is a fraction of the price for the genuine article.

Says Solly Refeal, president of Daniele Trissi jewelers in Scarsdale, N.Y.: "The quality of the imitation is so fantastic that nobody can tell it's not the real thing. This is hurting the watch industry."

The counterfeiters are selling not only in North America but also Russia, Europe and the Middle East. They are hard to nail because they often manufacture watch parts on Swiss machinery, then ship separate boxes of the parts -- straps, cases and batteries -- and assemble them in the country where they are sold. Then the Chinese advertise the watch as a "replica" and sell it in a box labeled "replica." For the consumer who doesn't mind wearing a high grade fake, this that can produce a real bargain.

Indeed, as the holidays approach, almost all the signs seem to be saying that in the venerable fine jewelry market, this may be a tough year for some marketers, but it will be a good year for hard-bargaining consumers.

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